This stock fund may be for you if you want to get a good night’s sleep and still make money.

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Almost all financial advisers recommend that individual investors avoid synchronizing the stock market. That advice can go in one ear and out the other in turbulent times, such as during last year’s coronavirus-induced panic. Professional money managers have several strategies to limit downside risk. Some of them are being sought today, as a recent reversal of interest rates has shaken investors from the stock market.

The ACM Dynamic Opportunity Fund ADOIX, + 0.14% follows a long / short strategy that seeks to provide investors with a measure of protection. However, their approach is not to short-sell stocks that portfolio managers believe will decline. Instead, the ACM team uses a rules-based strategy to sell short index ETFs, such as the SPDR S&P 500 ETF Trust SPY, -0.52% or the Invesco QQQ Trust QQQ, + 0.42%, during periods of severe market weakness. , as well as using options to hedge your long positions. The fund is rated four stars (out of five) by Morningstar and has performed well against the investment research firm’s Equity Long / Short category. Here’s a comparison to the category, the HFRX Equity Hedge Index, and the S&P 500 Index as of Feb 23 (HFRX Equity Hedge Index figures are as of Feb 22): In an interview, Jordan Kahn, Chief Investment Officer, ACM Funds in Los Angeles explained the strategy and how it selects long positions. He said the fund is not designed to outperform the S&P 500, even though it has done so over the past year. The above figures are net of expenses, representing 1.68% of the annual assets for the fund’s Class I shares. That is a high level of expense. It has $ 96 million in assets under management. The fund will be hedged based on the movement of general stock indices over various time periods. “When the indices are all above the moving averages, we will be 100% long,” Kahn said. As the indices dip below the 30-day moving averages and longer, the fund will be increasingly hedged, he said. “In a shallow pullback, the portfolio can only go from 100% long to 85% or 90% long … but by the time the market drops 10%, we are fully covered,” he said. it happened in February and March of last year. The S&P 500 fell 34% from its pre-pandemic closing peak on February 19, 2020, to its closing low on March 23, while the Class I shares of the ACM Dynamic Opportunity Fund fell 14%. So Kahn and his team don’t have a crystal ball. Rules-based hedging moves of the fund don’t take place until after a dip begins, but they can prevent the worst of a brutal beating. Kahn also said that the fund had changed its strategy after a V-shaped decline and rally in 2019, when it “underperformed much,” to make it more responsive and add long exposure more quickly during a recovery. You can see that poor performance reflected in the table above. The change in strategy has worked well since the end of 2019, through the stock market downturn and recovery cycle of the Covid-19 pandemic:

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High Valuations, Rising Interest Rates, and Fear Long-term interest rates have risen, along with fears of inflation, following the massive increase in the US money supply during the COVID-19 pandemic. This has hit the stocks of the fastest-growing companies the hardest, so far, but it makes sense because valuations for that group have expanded the most during the bull market. Here’s how future price-to-earnings ratios have increased for the S&P 500 Index SPX, -0.48% and the Nasdaq Composite Index COMP, + 0.56% over the past five years:

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Therefore, there are short-term and long-term concerns for investors who care about valuation. Investors Lack a “Strong Stomach” A disciplined investor who can weather repeated stock market downturn / rally cycles might be better served by not bothering to adopt a hedging strategy. After all, if you are making regular contributions to a 401 (k) or similar tax-deferred retirement account (hopefully your employer will match some of the contributions), you will pay lower prices during periods of decline. And even with all its swings and movements from crisis to crisis, the S&P 500’s average annual return over the past 30 years has been a neat 10.4%, according to FactSet.

Jordan Kahn, chief investment officer of ACM Funds. ACM Funds

But Kahn made a good case for the hedging strategy based on his 30 years as an investment adviser and portfolio manager: “Nine times out of 10, investors will say they have a strong stomach for risk, but inevitably, when gets into the teeth of a recession, when all the news is bad, they question themselves, sell at a very inopportune time, and then buy back at much higher prices. ”Long Stocks Kahn said the goal of the ACM Dynamic Opportunity Fund is to pursue forward growth by investing in 30 to 50 stocks of “true market leaders” while following the hedging strategy outlined above. These are the fund’s 10 largest long positions as of 31 January: Don’t Miss: If you want to get rich on marijuana stocks, you need to know the crucial difference between American and Canadian companies.